More borrowers seek relief from interest-only mortgages

Data released today from Moneyfacts.co.uk revealed there are still a number of options available for borrowers who tick the right boxes for making interest-only repayments.

And it has also revealed there are 86 retirement interest-only (RIOs) options available for older borrowers looking to move from interest-only deals.

It comes as Legal and General Mortgage Club revealed its brokers had experienced a significant rise in enquiries about interest-only mortgage options between April and May.

And Moneyfacts predicts that, as more borrowers come off mortgage holidays, they could be debating whether to move to an interest-only mortgage.

Rachel Springall, finance expert at Moneyfacts.co.uk, said: “The nosedive in the number of residential mortgage products has been as clear as day, with higher loan-to-value options taking a huge hit, but there still remains a healthy portion of deals for borrowers who may wish to take advantage of an interest-only repayment.

“Savings rates are at record lows and so if some borrowers have more disposable income, they may wish to pay off their debt rather than to save.”

How could interest-only help?

Interest-only mortgages require the borrower to pay the interest on the loan only, which means the monthly cost is significantly lower than on a mortgage where the capital was also being repaid.

On the other hand, you will need to have a plan in place to repay the capital of the loan and interest payments on these products tend to be higher over the term.

With the pandemic creating financial difficulties for many families, a product which allows smaller mortgage payments could be welcome in some households.

But due to the strict lending rules surrounding these products, anyone considering this option is urged to gain independent financial advice from a broker or intermediary.

Older borrowers

Research by One Family revealed 40% of over-55s with an interest-only mortgage will see it come to an end in the next five years.

While there are a number of options for older borrowers in the shape of RIOs, experts are again warning that these should be considered alongside the other range of later life lending products available.

Will Hale, CEO at equity release adviser, Key, said: “Today’s data suggests that consumers’ appetite for interest-only products is rising due to the current economic in the climate and there are over 80 retirement interest-only (RIO) mortgages designed to cater for older borrowers.

“While RIOs are a welcome addition to the later life lending market as they provide additional customer choice, it is important that they are not considered in isolation as for some equity release may well be a better long term option due to their flexible features and in-built customer protections such as fixed rates for life, guarantee of tenure and a no negative equity guarantee.”